Transitioning to a New Company: How Should HR Handle Employee Documents and Rights?

Hi Seniors, I am working as an HR professional with an IT company in Noida. The founder of the organization wants to open a new company with the same staff and management. All the employees will be transitioned to the new organization. I need to know which HR documents need to be provided to the employees. Should I ask the employees to resign from the existing company and then issue a fresh appointment letter for the new company? We aim to take care of the employees' rights, especially considering that many of them are approaching 5 years with the current company, so we plan to provide them with gratuity. I would appreciate your suggestions and guidance on this matter. Thank you.

It is more of a rebranding. However, it is key to be professional in one's job. I advise you to let them fill out the existing form and take the fresh one. Don't forget the logo of the new organization. Possibly, management reporting lines may change from the previous organization. So, let them fill out the existing form and reengage them as new staff for proper documentation with the following documents:

1. Personal Biodata Form
2. Assumption of Duty
3. Academic and personal references for HR auditing
4. Guarantor Form

Issue them an employment letter on the new letterhead paper.

Dear Riya,

As an HR professional, the following tasks need to be addressed urgently:

1. Gratuity should be continued. Some employers opt for this to avoid the liability.
2. Obtain a new PF code/ESI code, if applicable.
3. Ensure that the service conditions remain the same and communicate this to the Labour authorities.

Regards,
Charan

Status of Business Transition

Please check the status of the transition, i.e., the status of the person(s) having overall control over the business, the type of business, and any new director/partner injecting more money to redirect the company's operations. From an HR perspective, it needs to be established whether this is considered a new business from the employer's (Director(s)/financial and business type) point of view.

If everyone agrees that it is indeed a new business, the previous chapter must be closed before the new chapter begins. However, if it is simply a resolution for changing the business name from the perspective of the Income Tax Act/Companies Act, keep a copy of the resolution and inform the respective labor departments to update their records regarding the name change.

Please check the first Partner/Director status in the old and new company. If they are the same, then the previous company's employees' statutory liability can be carried forward, and employees' benefits remain the same as per the previous company policy. In this case, you have to issue a new letter to every employee or circulate an email to all for the same.

Company Merger Experience

Recently, I have completed a company merger, so I can provide all the relevant facts point by point. We are a consultancy company that provides advisory and other services. You can contact me on my number [Phone Number Removed For Privacy Reasons].

Regards

Dear Riya,

There is no mention in your post about the constitution of the existing company and the proposed one. If the existing company is a company registered under the Companies Act, 1956, it can start or acquire another company as a wholly-owned subsidiary (WOS), in which case the services of the employees of the existing company can be transferred to the new one, I think.

Thank you all for your valuable suggestions.

Situation Overview

Both companies are registered under the Company Act of 1956. Management does not want to show any link between the companies—no acquisition, merger, business transfer, etc.

The structure is as follows: 'Mr. R' runs a company called 'ABC' and has developed a software product. Now, due to some (unknown) reason, Mr. R wants to open a new company 'XYZ' with the same management structure. XYZ will start its business with the same employees' team. Every employee will retain the same position they held in 'ABC.'

Points of Concern

1. Appointment letter: with the same designation and no probation period (as they are confirmed employees of ABC).

2. Leaves: What to do with their leave balances with ABC? Can it be credited to their leave account of the new company? What will be its impact on the company's liabilities in the accounting book? Note: Management and some employees are not in favor of leave encashment.

3. PF: The old company was exempted from PF, but the new company would be registered under PF compliance. So, I think this is not a problem.

4. Gratuity: Management is paying employees gratuity as per the calculation till date with their full & final from 'ABC.' Management is paying every employee, whether they are eligible or not, to make them feel good.

Please shed some light on these points and advise. Also, let me know what other things need to be taken care of from HR's perspective.

I apologize for this long post, but I need your support.

Thank you.

From your further inputs, Riya, I don't think there is any problem, either legal or otherwise, in the proposal. However, the only point of concern is the willingness of the individual employees. Therefore, in respect of the willing employees, the transition can be facilitated based on the following norms:

1) Appointment Letter: As suggested by you.

2) Leave: As the arrangement amounts to the termination of employment by resignation as far as ABC is concerned, the leave at credit can be encashed. Since the encashment of leave at credit is one of the items of the FF Settlement, individual preference has no room in it.

3) P.F: O.K.

4) Gratuity: O.K.

Regards

Clarification on Transitioning Employees to a New Company

Things are much clearer now. Since the employer is ready to clear past due salary and gratuity, whatever is due, it has to be the amount due against gratuity irrespective of the length of service; it has to be like a voluntary payment.

Leave encashment for privilege/earned leave is to be made against what is due till the termination of the previous employment. Other leave can be given to employees as per the new leave rules. An employment certificate from the previous company can be issued to all existing employees. A new employment letter can be issued in the new company.

However, for the probation period clause, we need to understand the purpose of the probation period. It is nothing but an evaluation period for both the employer and the employee. I strongly believe that those who are regular and confirmed employees in the previous company may be given employment as confirmed employees or without a probation clause. New recruits can be taken as per the rules. This will help the organization in retaining existing talent. The EPF facility is to be extended in the case of the new company as apprised by you.

In view of the above, I believe that as far as HR is concerned, one should be positive enough to accept company goals under the given circumstances.

Regards

Appointment Letter
A fresh appointment letter is needed, including details such as designation, pay, resignation/exit process, etc.

Gratuity
Previous service should be counted when working out gratuity. It is essential to mention in the appointment letter that previous seniority will be protected and included in the new company.

Leave Encashment
It is recommended to close the previous chapter of leave, including accumulated leave, by paying off employees. Start afresh with leave policies for employees in the new company. Of course, the willingness of employees will be required in writing for all changes.